This is a rush transcript from "Your World With Neil Cavuto," June 23, 2010. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: The tumult over the general.... How would one Chris Christie handle this? I spoke exclusively with New Jersey's Republican governor just moments ago.

(BEGIN VIDEOTAPE)

GOV. CHRIS CHRISTIE, R-N.J.: I understand, as an executive and a commander in chief of the National Guard here in New Jersey, that, you know, if you're the commander in chief, you — you have to be the person in charge.

Now, there are also times when you're going to want robust debate and advice that differs from yours if you're a commander in chief from the people on the ground who are giving you that advice. And I insist on that myself, not only on domestic issues, but on issues regarding our National Guard.

CAVUTO: You know, Governor, there are people who say insubordination is insubordination. Challenging your boss is challenging your boss. The closest analogy I could make to you, sir, is when you kept on your education commissioner, Bret Schundler, when he had gone ahead and made some deals with — with union heads that you were not a fan of. And you immediately challenged him on that and said that he operated without your authority.

But you didn't fire him. Is there a distinction?

CHRISTIE: Well, you know, listen, again, I think that goes to the relationship. Bret and I had a number of really direct conversations about those decisions that he made...

CAVUTO: What does direct mean?

CHRISTIE: It means I didn't mince any words.

(LAUGHTER)

CAVUTO: OK.

CHRISTIE: And — and in the end, I concluded that Bret understood that he had made a mistake, and that that mistake wasn't going to happen again. And so that's the decision that I made, when you also balance it against the value that I think Bret Schundler will bring to our administration in terms of his ambition on school reform, which we need to have in New Jersey.

And what an articulate spokesmen he's been for that over the last almost two decades in New Jersey. You have to balance all those things out — the benefits of the person and the mistake that was made.

And, in my judgment, with Bret, once I had his assurance that that was something that wasn't going to happen again that it really was, legitimately, just an error in judgment on his part, I felt confident in keeping him on.

But that's kind of my point with the president and General McChrystal. I also have a relationship with Bret where I — when I sat across from him, I believed he was telling me the truth. I think that's what the president probably is going to try to get at today with General McChrystal and why the history of the relationship is probably really important.

In my judgment, keeping Bret Schundler was the right thing to do.

I'm happy to have him on board. No one is going to live life without making mistakes. I certainly make them. So does everybody else. As long as you believe those are honest, genuine mistakes, I think people, you know, should get a second chance.

CAVUTO: You have just put the finishing touches — and there's broad agreement on the principles — of a pretty substantial New Jersey budget, the smallest in five years, at around $29.4 billion.

And you did it all without a single tax increase, and this in the face of developments in Washington where just today, Governor, they're talking about that so-called $250,000 threshold for hiking taxes isn't gospel. Dianne Feinstein of California had said maybe $200,000, could go lower. It's not sacrosanct. That's the president's pledge, not Democratic leaders' pledge.

What do you make of that?

CHRISTIE: Well, listen, I can only talk about what we've done in New Jersey.

And I just think that we're at a point in our economic life here in our state — and — and, candidly, across the country, where increased taxes is just the wrong way to go. The people of our state are not convinced that state government, county government, local government has done all they can with the money we already give them, rather than the money that we have before.

And so...

(APPLAUSE)

CHRISTIE: You know, we got together...

(CROSSTALK)

CAVUTO: Sorry, Governor. I should explain to those wondering where the crowd — we're here with a large forum, town hall meeting that the governor is going to be holding shortly, so there are a good few hundred people in this room. And so, when they react, you're going to hear it.

But I'm sorry.

CHRISTIE: Listen, I — so that's why I made the — made the commitment back in March. I said we are going to balance an $11 billion budget deficit in a $29 billion budget, so by percentage, the largest budget deficit in America, by percentage, larger than California, larger than New York, larger than Illinois. And we're going to balance that without raising taxes on the people of the state of New Jersey.

They've had their taxes raised 115 times in the last eight years, and yet we still have this deficit that we're dealing with.

So, to me, I just think raising taxes to close these holes is something that is counter to getting private sector economic growth, so we can put people back to work in good-paying private sector jobs.

That's what we have to do in New Jersey. And, you know, I think what we have done, in cooperation with the legislature, in being able to do this, Republicans and Democrats, is to — to show folks in New Jersey that we get it and we have to do better with what they're already giving us. And, in fact, in my view, over the next number of years, we should be taking less from them, not more.

CAVUTO: This invariably leads to folks saying you side with the rich. When you vetoed a millionaire's tax, which actually wouldn't have affected those earning as little as $400,000, it was immediately met with hue and cry that you were on the side of fat cats.

The New Jersey Education Association president said: "The choice could not be more stark: tax cuts for millionaires or full school funding for New Jersey kids."

CHRISTIE: Well, let's be clear, the millionaires tax, as they called it, was allowed to expire by Governor Jon Corzine and the Democrats in the legislature in December of last year, before I was even governor. And what I said was, they wanted to pass that tax. That was their choice to extend this tax. They chose not to because they wanted to play politics.

And they thought, wait, we can get a two-fer here, you know? We can raise the taxes and get more money to spend to expand our programs, and we can force the governor to do something we know he doesn't want to do and said he won't do, which is raise taxes on anyone in New Jersey.

And I said to them, you made your choice. You didn't want to take the revenue when you had a governor who would sign it. You're not going to get it now, because raising taxes on businesses in New Jersey, which that would have done, and individuals in New Jersey, is not what's going to make our private sector grow.

We already have the worst tax burden of any citizens in America, when you combine all of our taxes. So raising taxes on anybody — because, believe me, today, they're going to raise taxes on those people. Next year, they will come back and raise taxes on somebody else. And then it's going to get into your pocket.

Someone has to stay on the line and say, no, we can do this by cutting spending and reducing the size of government. That's what I was committed to doing. So, all these other things are just politics and false choices.